3/21/2002 @ 10:03AM

Investment Newsletters Un-Buffetted

Warren Buffett‘s celebrated chatty essay in every
Berkshire Hathaway
annual report was something of a downer this year: Buffett warned that the company will not be as profitable in the future as it has been in the past.

But the investment newsletters don’t care: Prior to the release of the annual report, The Hulbert Financial Digest counted seven newsletters recommending Berkshire Hathaway
for purchase. At last report, none of them had withdrawn their buy recommendation. In fact, two letters took the occasion of the release of the annual report to cast a vote of confidence in Buffett.

“Berkshire reported drastically lower net profits. The company was walloped by $2.4 billion in claims from the Sept. 11 destruction of the World Trade Center alone. And the company’s book value fell for the first time ever since Warren Buffett gained control of the company back in 1965. (For Buffett’s complete comments, read the annual report at Berkshire’s Web site) So is this it? Is it time to cut and run on Berkshire Hathaway? Absolutely not. Berkshire Hathaway should continue to outperform the market in the months and years ahead–the company has the capital, the liquidity and, of course, the smarts to grow rapidly over the next few years.

For instance, Berkshire recently announced its plans to buy
Williams Companies
‘
926-mile natural gas pipeline business. Buffett has also indicated he intends to expand in the utility business, where revenue is predictable and capital requirements are high. Berkshire has historically compounded its book value at a 24% average annual rate. With the company now one of the world’s largest, that rate of growth is likely to slow. But Buffett is a true financial genius. I wouldn’t bet on him lagging the market for long.”

Finally, Warren Buffett and Vice Chairman
Charlie
Munger
Charlie Munger
are the company’s largest shareholders. In other words, they eat their own cooking. And they don’t undermine fellow shareholders by voting themselves lucrative options packages or other executive perks. (When Buffett was finally persuaded to buy a corporate jet for Berkshire a few years ago, he named it The Indefensible.) So, yes, terrorism has increased the risk in the property-casualty industry. And at 71, Warren Buffett is no spring chicken. But with a stable of world-class companies in its portfolio, a boatload of cash on the books and the world’s best money manager at the helm, I wouldn’t sell Berkshire short. In fact, I’ d do just the opposite.”

“Though Berkshire is a vast array of stock holdings and wholly owned businesses spanning industries from furniture to publishing, its major business is insurance. In this arena, money is critical to success. And Berkshire has more money than any other competitor and one of the largest equity bases of any company in the world. The recent tightening in insurance premiums has helped Berkshire translate some of this excess capital into strong growth. Profit in 2002 should exceed previous peaks by nearly 100% and it’s poised to grow from there. Berkshire, which has one of the strongest balance sheets of any company anywhere, is a stock for all seasons, for all markets.”